one big beautiful bill act restaurants

How One Big Beautiful Bill Impacts Restaurant Operators

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Thomas Campbell

August 15th, 2025

The One Big Beautiful Bill Act of 2025 (Public Law 119-21, signed July 4, 2025) makes sweeping but temporary tax changes affecting restaurants. Key provisions waive federal income tax on qualified tips and overtime (2025–2028), add a deduction for car loan interest, and increase the senior standard deduction.

Restaurant operators should understand the new rules and how to comply.

Below we explain each provision, compare it to the prior law, and discuss practical impacts on payroll, hiring, and reporting.

 Summary

  • The One Big Beautiful Bill Act of 2025 introduces temporary tax breaks for tips, overtime, car loan interest, and seniors from 2025–2028.

  • Tipped employees can deduct up to $25,000 in qualified tips from federal taxable income, but tips must still be reported and are subject to payroll taxes.

  • Overtime workers can deduct the premium portion of overtime pay (up to $12,500 single or $25,000 joint) from federal taxable income, while employers must separately track and report it.

  • A new car loan interest deduction allows up to $10,000 annually for qualifying new, U.S.-assembled personal-use vehicles, benefiting employees and owners who finance cars.

  • Seniors age 65+ get an extra $6,000 standard deduction ($12,000 for qualifying couples) on top of existing senior deductions.

  • Restaurant owners must update payroll systems, prepare for new IRS reporting rules, and communicate changes clearly to employees to ensure compliance and maximize benefits.

No Federal Income Tax on Tips

What’s changing:

  • From 2025–2028, employees can deduct up to $25,000 of reported tips from their federal taxable income.
  • This applies to cash and card tips in IRS-approved “tipped” jobs (list coming Oct. 2, 2025).
  • The deduction phases out for higher earners ($150K single / $300K married).
  • Available whether or not employees itemize deductions (but not for certain self-employed owners).

What stays the same:

  • Tips must still be reported, shown on W-2s, and are subject to Social Security and Medicare taxes.
  • Employers must still track and report tips to the IRS.
  • The FICA tip credit for employers is unaffected.

What it means for restaurant operators:

  • Update payroll systems now to track tips separately for each employee (and possibly by job title).
  • Coordinate with payroll vendors to add new earnings codes.
  • Train staff to understand that the tax break is claimed on their personal tax return, not through reduced paycheck withholding.

No Federal Income Tax on Overtime Pay

What’s changing:

  • For 2025–2028, employees can deduct the “premium” portion of overtime pay (the extra half over their normal hourly rate).
  • Deduction limits: $12,500 for single filers, $25,000 for married filing jointly. Phases out at $150K single / $300K married.

What stays the same:

  • Overtime pay is still subject to payroll taxes (Social Security, Medicare).
  • Employers must still withhold income tax as usual, the refund comes when employees file.

What it means for restaurant operators:

  • Payroll must track overtime premiums separately from regular wages.
  • Request payroll vendor updates for W-2 reporting (new codes or boxes may be required).
  • Start tracking from January 1, 2025, since the law applies retroactively.

Car Loan Interest Deduction

What’s changing:

  • Through 2028, individuals can deduct up to $10,000/year of interest on loans for new, U.S.-assembled personal vehicles.
  • Vehicles must be under 14,000 lbs (covers most cars, SUVs, pickups, motorcycles).
  • Only for personal use and not for business vehicles or leases.

Impact for restaurants:

  • No direct effect on your business books.
  • Staff or owners who buy a new U.S.-built car for personal use may benefit.

Action for restaurant operators:

  • Inform staff, especially delivery drivers using personal vehicles, about the potential tax break.
  • No payroll changes needed for this deduction.

Extra Standard Deduction for Seniors

What’s changing:

  • Starting in 2025, taxpayers aged 65+ get an extra $6,000 standard deduction ($12,000 if both spouses are 65+).
  • Phases out at $75K single / $150K married.

Impact for restaurants:

  • Owners or employees 65+ can save more on taxes each year.
  • Simple to claim, no special tracking needed, just verify age on tax forms.

Compliance Checklist For Restaurants

  1. Upgrade payroll systems to track tips and overtime premiums separately.
  2. Coordinate with vendors about W-2 format changes and reporting codes.
  3. Collect the right data, job titles for tipped workers, overtime hours, and pay details.
  4. Train managers and payroll staff on the new rules and how to explain them to employees.
  5. Communicate clearly with employees so they know the tax break comes at filing time.
  6. Plan now, even with IRS transition relief in 2025, data needs to be accurate starting January 1.

Conclusion

The One Big Beautiful Bill Act of 2025 introduces important tax relief for restaurant employees and older owners but it also requires adaptations in payroll and record-keeping.

In sum, the new law can put more take-home pay in employees’ pockets (and save taxes for senior owners), which may help recruitment and morale. It also means added administrative work. Careful planning and communication will let restaurant owners reap the benefits while staying compliant with the new tip, overtime, and reporting rules.

FAQ

Yes. Tips must still be reported to employers and the IRS, and are subject to payroll taxes, but employees can deduct up to $25,000 of qualified tips from their federal taxable income when filing their return.

No. The deduction applies only to employees’ federal income tax; overtime pay remains fully subject to Social Security and Medicare taxes, so employer payroll tax obligations remain unchanged.

No. It applies only to new, U.S.-assembled personal-use vehicles purchased on loan; business-use and leased vehicles do not qualify.

All four provisions, the tip deduction, overtime deduction, car loan interest deduction, and senior deduction are currently in effect for tax years 2025 through 2028.

Restaurant operators should update payroll systems to track tips and overtime separately, prepare for new IRS W-2 reporting codes, and educate employees about how to claim these deductions on their personal tax returns.

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